US Dollar
It is the day before the Thanksgiving holiday here in the US and most
dealers are thinking more about their long trips home than taking new
positions in the markets. We have been seeing quite a bit of
profit taking across the board in dollar pairs as the market gears up
for two days of illiquid trading. There were a sprinkling of
releases out from the US today including mortgage applications, jobless
claims, the University of Michigan consumer confidence survey and the
help wanted index. According to the mortgage applications data,
which saw a 3.4 percent fall in applications, the housing market
continues to show signs of weakness. The labor market will be a
big focus next week with non-farm payrolls due for release on
Friday. Today, we saw the first hints of how the market may have
been performing. Jobless claims ticked higher to 335k from
305k. According to the BLS, 10k of that rise was probably
attributed to the Hurricanes. The help wanted index for the month
of October remained unchanged at a downwardly revised 38. Despite
the modest disappointments, the optimism for November payrolls is
high. After the sharp disappointment reported last month,
analysts once again expect over 200k jobs to have been created last
month. Analyst estimates have been so off recently that they have
become virtually unreliable. However, surveying the economy, it
does appear that growth is picking up as well as the rebuilding efforts
for Hurricane laden regions, which could help to boost payrolls.
Aside from NFPs, there are a number of other pieces of data worth
watching including durable goods, consumer confidence, GDP, Chicago
PMI, the Beige Book and ISM. All of this should provide us with
more insight into how long the Fed plans on maintaining their
aggressive tightening cycle as well as inject some more volatility into
the currency markets.

Euro
With only Eurozone industrial orders and Italian consumer confidence
released this morning, focus for Euro traders continue to be the
imminent rate hike next week. Both industrial orders and consumer
confidence came out stronger than expected, but neither did much to
bolster the Euro. Instead, profit taking remains the predominant
theme as US traders square up ahead of the holiday. However, for
the rest of this week and most of next, one of the big topics on the
mind of FX traders will be the ECB’s first rate hike in 2.5 years
expected on Thursday. Now judging from the recent comments by ECB
officials, the rate hike itself seems to be a near certainty.
High energy prices have increased inflationary pressures, but the real
question will be whether the central bank follows up with a series of
hikes or not. According to comments by ECB Wellink this morning,
rate hikes come in small steps and the central bank wants to be very
careful not to over hike such that they are then forced to lower rates
shortly afterwards. Quaden confirmed our perception that the ECB
believes that slow and steady wins the race, as he compared the central
bank’s first move to “taking the foot off the gas rather than slamming
on the brakes.” Overall, it seems that the ECB wants the market
to believe that they will keep monetary policy accommodative after the
hike so that growth continues to improve.

British Pound
The main focus today was the minutes from the most recent Bank of
England Monetary policy meeting. According to the report, the
latest decision to keep interest rates unchanged was based on a
unanimous 9-0 vote. There was a minority group that believed one
person could have voted in favor of a rate cut. If this was true,
it would be perceived as a bearish signal for the British Pound.
Instead, the unchanged view validates the general belief that the MPC
is really taking one step at a time and watching the trend of data very
closely before determining their next step on rates. The report
indicated that views diverged tremendously within the BoE. Some
members saw weaker growth for the second half of the forecast period
while others saw stabilization or improvements. It certainly
doesn’t help that data released thus far has been very mixed. The main
focus seems to be on wage growth. BoE Walton said today that the
central bank will focus the path of interest rates on wage
settlements. So this too, will be one of our main focus as we
assess data in the weeks and months ahead.

Japanese Yen
The Japanese Yen has weakened for the third consecutive trading session
with the USDJPY currency pair showing signs of rolling over. The
Japanese markets were closed today, so most of the move was probably
related to overall profit taking. Comments from Bank of Japan
Governor Fukui did cause a bit of jitter as he downplays recent
comments by Prime Minister Koizumi. Fukui warned that the BoJ
alone would decide when to end their zero interest rate policy and not
anyone else. This takes a direct stab at Koizumi’s rare comments
on monetary policy last Monday. In a question and answer session,
the Prime Minister had said that he thinks “it may be too early” to end
the BoJ’s quantitative easing. It remains to be seen whether the
BoJ can be truly independent.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.Learn forex trading with a free practice account and trading charts from FXCM.

Please note the information on this website is intended for retail customers only, and not for any Eligible Contract Participants (i.e., institutional clients) as defined in the Commodity Exchange Act §1(a)(18).